The Different Aspects of Real Financial Progress

As 2024 approaches, this is a great time to look back on what has happened for the year. While the usual questions to reflect on are something like what have we improved or what changes did we make, one thing that we can also ask ourselves is, have we made any financial progress?

Some may instantly think of the commonly considered milestones one can achieve in life, like being able to buy a house, afford a car, or travel abroad. These goals are good if all of them make you enjoy and live your life to the fullest. But let’s keep in mind that these are all things you spend money on. This means being able to achieve them doesn’t automatically equate to progressing financially. And the opposite can be said as well. Just because you haven’t bought a car or a house or you haven’t travelled this time doesn’t mean you don’t have any financial progress. There’s more to it than that.

Progressing financially is all about your ability to grow in four (4) different aspects of life. And to clearly understand this, I’ll be covering in this article what these aspects are.

1. Competency

The first is competency. This pertains to your skills that will help you level up in your chosen career, whether you’re an employee or an entrepreneur. You know what you need to develop, and you have the capability to successfully accomplish things.

To give an example, as a financial advisor who talks to a lot of people, one competency I developed over the years is communication. This is important in my field because it helps me connect with clients and be able to help them with their needs.

With that said, have you developed any skills for this year? And what are the relevant skills that you should be improving? Because growing your competencies will help grow your income. The more value you can provide, the more you can progress financially.

Now, let’s go to the next aspect.

2. Community

This is defined as the people you surround yourself with as you pursue your dreams. While we don’t much have a say in the people around us while growing up, as adults, we can now get to decide who we surround ourselves with.

As the saying goes, your network is your net worth. This means that the people you let into your life will have a significant influence on your progress. And to identify who these people are, consider the individuals you spend the most time with on a mental, emotional, and physical level. Whether you’re with them in-person or you’ve been following them on social media, they can directly affect you and your progress.

Now, if you think that there aren’t many positive and motivating people in your life, you must become that person and look for others that will inspire you. There are multiple ways to do so, like attending physical events, joining different communities, or participating in masterclasses or workshops.

I understand that there are people who are not really comfortable with the idea of meeting new people and socializing with them. But I believe that one way to grow is to focus on our goals instead of our fears. We must realize that our dreams are much more important than our doubts. And the connections we make will help us in our personal and professional development.

3. Compounding

The third aspect is compounding. In finance, this means that the interest your money earns is also earning money. And this aspect is the opposite of what people usually think financial progress is. There may be people who increased their income, but they also increased their expenses. Their earnings weren’t allowed to grow, meaning it didn’t compound.

To understand this better, here are three levels of compounding a person can be in:

• Negative Compounding
  To illustrate this, let’s say a manager was given a car benefit of PHP 750,000, but the manager wants a car model that is priced at PHP 1,000,000. Since there’s an “opportunity” to get the dream car, the manager will take a loan just to afford it. While there’s nothing wrong with buying a car, this shows the habit of negative compounding. And it’s the tendency to spend more money as soon as you get it.
• Zero Compounding
  Most people who refrain from extravagant spending are at this level. They may have the money, but it’s growing from little to none. It’s kept in traditional banks that give very low interest rates of less than 1% annually. And some are even subject to withholding tax that will be deducted from the small amount of interest earned.
• Positive Compounding
  Now, this is where your money is working hard for you. As a start, people can have a percent of their money deposited in trusted digital banks, which offer higher interest rates compared to traditional ones. But an improvement to this are those who are investing their money. For example, investments in the stock market can earn up to 12% annually over the long term. On another note, entrepreneurs can earn more than 100% per year. Of course, this can’t easily be done overnight, but it is definitely possible.

So if you’re at the negative or zero compounding level, the goal is to reach positive compounding and have the ability to grow your money and make it work hard for you.

With that, let’s now discuss the last aspect of identifying financial progress.

4. Contribution

The best growth in any of these four aspects is here in contribution. Growing the amount or the percentage you are able to give is a great indicator of progress. Wealth, freedom, and success all lead to financial abundance. It is our end goal, and this includes our ability to help other people in our own ways.

This can vary from giving money to charities or allowances to a family member to sponsoring scholars or even volunteering your time to pet shelters. Something to reflect on with this is how to be able to give more in a sustainable manner. And if you are able to increase the amount or percentage of what you give, whether in time or money, consider it a step forward and know that you are progressing financially.

And now that we’ve covered these, let’s take each into consideration and determine any improvements we’ve made this year. If you think there might not be any significant changes for you, this is a good opportunity to set your goals and achieve them in 2024. Just focus on growing in these aspects, and you’ll be on your way to real financial progress.